The separation of ownership from control, which characterises the modern firm, necessitates monitoring and inducement mechanisms to ensure that managers maximise shareholder wealth. This study investigates the relation of firm value to these corporate governance mechanisms. The results of the analysis show that there is considerable interdependence between corporate governance and firm structure variables. Most importantly, it appears that the two principal governance mechanisms, managerial equity ownership and the board of directors, are optimally chosen. The methodology employed here suggests that previous work has not fully accounted for the comprehensive and simultaneous nature of the governance process. Weaker evidence is obtained for directors' remuneration and outsider equity ownership. Directors' remuneration is substantially determined by the structure of the firm, and is not strongly related to the performance of the firm. In addition, it appears that large equity investors have different motivations and their presence within a firm's ownership structure may not always be associated with a monitoring function.

This thesis comprises three empirical studies that investigate the effects of director networks and corporate governance mechanisms on firm performance and CEO compensation. The first empirical study (chapter three) describes the extent of board networks among non-financial FTSE 350 firms listed on the London Stock Exchange during 2007-2010. We use the concept of the “centrality” from social network analysis to examine whether board networks are related to firm performance. We find that firms whose directors are more central in a network are associated with better financial performance. Consistent with the “Reputation Hypothesis” (Fama and Jensen, 1983), the number of director connections may proxy for director reputation. Directors are motivated to improve their reputation since they can use their directorships to signal to the market that they are good at decision-making, and at providing advice and monitoring management. The second empirical study (chapter four) investigates the effects of director networks on CEO compensation among non-financial FTSE 350 firms listed on the London Stock Exchange between 2007 and 2010, while controlling for CEO characteristics, corporate governance characteristics and firm characteristics. We first examine the impact of CEO networks (individual level) and second board networks (firm level) comprising all board members. We examine not only the total remuneration of the CEO but also two important components of the remuneration package, i.e. basic salary, and long term incentive plans (LTIPs). At the individual level, we find that a well-connected CEO measured by “centrality” receives higher total compensation. Although we find a positive relationship between basic salary and CEO networks, we do not find evidence of a relationship between LTIP compensation and CEO networks. The relationship between board networks and CEO compensation is also examined at the firm level. The results show that board networks have a positive and significant effect on total compensation and LTIP compensation but not on basic salary compensation. The third empirical study (chapter five) examines the effects of directors’ business networks, directors’ social networks and corporate governance mechanisms on firm performance. Previous studies have considered only business networks (directorships), while this study explores both business networks and social networks, such as current and past employment, education background, and other types of social activities (membership of golf clubs, membership of charity organizations, universities alumni, etc). We find that well-connected directors seem to use their networks to improve firm performance and in line with the interest of their shareholders. We further split the effects of board networks into business and social networks. We find that social networks play a more important role than business networks in improving firm performance, consistent with social capital theory (Coleman, 1990) which argues that networks of social connections can provide firms with valuable resources and information. Overall, this thesis provides empirical evidence that director networks and corporate governance mechanisms play an important role in affecting CEO remuneration and firm financial performance. The findings of this thesis suggest that regulators, firms and individuals should not only pay attention to business networks but also to social networks.

In this thesis, I explore the topic of chief executive officer (CEO) compensation in UK publicly traded firms. My objective is threefold. First of all, I investigate debt-holders‟ reaction to CEO compensation in terms of the cost of debt financing. Secondly, I examine the possible link between CEO compensation and expectation management. Thirdly, I examine whether and how the interactive relation between CEO career horizon and compensation package affects a firm‟s research and development spending. Multiple regression is employed in this thesis to investigate the causal relationship between these above mentioned aspects I‟m interested (the cost of debt, expectation management and research and development spending) and CEO compensation. I consider all major compensation components for a typical CEO in UK publicly traded firms: defined benefit pension, bonus, restricted shares, traditional stock options and performance-vested stock options. The accumulated equity incentives, such as ownership, are also examined. My major findings are as follows. First of all, I find that an increase in defined benefit pension and bonus in CEO compensation are associated with a lower bond yield spread, while an increase in stock options and ownership intensifies it. Secondly, I document that CEO equity incentives that will be vested in the following year are positively associated with the probability of employing expectation management to meet or beat financial analysts‟ forecasts about a firm‟s reporting earnings. Thirdly, I demonstrate that older CEOs will not spend less in research and development expenditures in general. However, older CEOs with more defined benefit pensions and ownership are reluctant to engage in such an investment. iii My results generate several implications for CEO compensation research. First of all, I show that debt-holders rationally incorporate the information of CEO compensation about risk-taking and risk-avoiding incentives when pricing a firm‟s publicly traded debts. Secondly, I provide the evidence that CEO compensation motivates top managers to manipulate information disclosure by employing expectation management for personal gains. Thirdly, the joint influence of CEO career horizon and compensation package on a firm‟s research and development spending is highlighted. CEO compensation motivates a short-sighed and risk-averse investment policy when top managers have a short career horizon. The first novel contribution in this thesis is the coverage of CEO pension, which is overlooked by the most of previous literature on compensation studies. Secondly, I provide the evidence that the popularity of expectation management in the UK, which is well documented in the literature, can be partly explained by CEO compensation. Finally, the interactive relation between CEO compensation and career horizon on a firm‟s investment policy is re-examined. It provides further material in the debate of career horizon problem, which has no consensus in the previous literature. Overall, this thesis generates some empirical evidence about the influence of CEO compensation on managerial behaviour. Some adverse effects of CEO compensation highlighted in this thesis may help remuneration committee to design a better pay package for top managers in the future.

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Company directors, being human, may be tempted to promote their own interests rather than those of the companies on whose boards they serve. Directors are subject to a number of legal duties. A director has a fiduciary duty to act in good faith and in the best interests of the company. A number of other duties flow from this duty such as the duty to avoid a conflict of interests. The duty of a director not to appropriate a corporate opportunity belonging to the company of which he or she is a director, also flows from the duty to avoid a conflict of interests. The common-law duties of directors which have their origins in English law, have developed over a number of years. Because of the difficulty that directors had in establishing what their duties were, a number of jurisdictions embarked on a process of codifying or partially codifying these duties. South Africa, Australia and England are three countries that have promulgated legislation which has resulted in the codification or partial codification of directors’ duties. The purpose of the codification or partial codification of directors’ duties was firstly to clarify the duties of directors, and secondly to make the duties more accessible to those affected by them – the directors of companies. In South Africa the Companies Act 71 of 2008 has partially codified the duties of directors. Because directors’ duties have only been partially codified there is uncertainty regarding their scope. This dissertation will focus on the possible effect of the 2008 Companies Act on the duty of a director not to take a corporate opportunity falling to the company. In this dissertation I address two issues involving the effect of the 2008 Companies Act on the duty of a director not to appropriate a corporate opportunity belonging to the company. Firstly, I consider whether the partially codified directors’ duties are wide enough to cover issues involving the appropriation of corporate opportunities. Secondly, I consider the appropriate common-law test or tests to be applied in determining whether, in the specific circumstances, an opportunity should be classified as a corporate opportunity. In considering whether the partially codified duties of directors are wide enough to include the corporate-opportunity rule, I compare the approach to corporate opportunities and the corporate-opportunity rule in South Africa, Australia and England. / Mercantile Law / LL.M. (Corporation Law)